HEAD-TO-HEAD: AB versus Blackrock

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Investment approach

Both the AB and Blackrock funds belong to Morningstar’s US large-cap category, which means they have very limited exposure to mid- to small-cap US stocks, according to Wolfstetter.

However, one of their differences is style bias. The AB fund is tilted towards more growth companies, while the Blackrock fund is more valuation conscious.

Their processes are also very different. According to Wolfstetter, the AB fund combines a top-down and bottom-up approach in stock selection, adding that it has a “stronger” macro-overlay when compared to the Blackrock fund.

“The manager is quite responsive to market changes in order to limit downside losses,” she explained. Because of that, the fund’s turnover is higher than most peers, at around 300%-500%, she added.

Although Wolfstetter believes that the product’s process has been successful in limiting downside risk, she said that it has “high execution risk”, which means that the process is not easily replicable by a less-experienced fund manager.

Turning to the Blackrock fund, Wolfstetter explained that the product blends quantitative screens with the analysts’ forward-looking fundamental insights of companies. The quantitative screens include valuation, quality and investor sentiment.

The portfolio is then constructed using an “optimiser” that integrates both quant and fundamental inputs.

Wolfstetter noted that the product’s quantitative model has undergone change since 2012.

“It is not a complete overhaul because they have always have been doing this combination of quantitative and qualitative analysis, but what they have been doing is making the process more systematic,” she said.

For example, the product made use of third-party quant models until a proprietary model was created and launched in 2012. In addition, following the introduction of the internal model, the number of holdings was reduced to around 80 from at least 100, and the exposure to mid-caps decreased significantly.

Changes in the management of the fund in 2017 have also led to a reduction in portfolio holdings to around 50, she added.

The differences in the two funds’ investment approach are not reflected much in their sector allocations, noted Wolfstetter. However, she said that the differences are more seen on the stock level and how they perform.

Sector allocation (%)

Source: Morningstar

Top 10 holdings

Source: Fund factsheets

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